OIT - Demographic change in Europe and Central Asia - Addressing the issue of a shrinking and ageing labour force

X Demographic change in Europe and Central Asia Addressing the issue of a shrinking and ageing labour force Authors / Maria Sabrina De Gobbi, Stefan Kühn, Guido Heins, Ziyodakhon Malikova

April / 2025 ILO Working Paper 139© International Labour Organization 2025 Attribution 4.0 International (CC BY 4.0) This work is licensed under the Creative Commons Attribution 4.0 International. See: https:// creativecommons.org/licenses/by/4.0/. The user is allowed to reuse, share (copy and redistribute), adapt (remix, transform and build upon the original work) as detailed in the licence. The user must clearly credit the ILO as the source of the material and indicate if changes were made to the original content. Use of the emblem, name and logo of the ILO is not permitted in connection with translations, adaptations or other derivative works. Attribution – The user must indicate if changes were made and must cite the work as follows: De Gobbi, M., Kühn, S., Heins, G., Malikova, Z. Demographic change in Europe and Central Asia: Addressing the issue of a shrinking and ageing labour force. ILO Working Paper 139. Geneva: International Labour Office, 2025.© ILO. Translations – In case of a translation of this work, the following disclaimer must be added along with the attribution: This is a translation of a copyrighted work of the International Labour Organization (ILO). This translation has not been prepared, reviewed or endorsed by the ILO and should not be considered an official ILO translation. The ILO disclaims all responsibility for its content and accuracy. Responsibility rests solely with the author(s) of the translation. Adaptations – In case of an adaptation of this work, the following disclaimer must be added along with the attribution: This is an adaptation of a copyrighted work of the International Labour Organization (ILO). This adaptation has not been prepared, reviewed or endorsed by the ILO and should not be considered an official ILO adaptation. The ILO disclaims all responsibility for its content and acalong with the attribution: This is an adaptation of a copyrighted work of the International Labour Organization (ILO). This adaptation has not been prepared, reviewed or endorsed by the ILO and should not be considered an official ILO adaptation. The ILO disclaims all responsibility for its content and accuracy. Responsibility rests solely with the author(s) of the adaptation. Third-party materials – This Creative Commons licence does not apply to non-ILO copyright materials included in this publication. If the material is attributed to a third party, the user of such material is solely responsible for clearing the rights with the rights holder and for any claims of infringement. Any dispute arising under this licence that cannot be settled amicably shall be referred to arbitration in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL). The parties shall be bound by any arbitration award rendered as a result of such arbitration as the final adjudication of such a dispute. For details on rights and licensing, contact: rights@ilo.org. For details on ILO publications and digital products, visit: www.ilo.org/publns.

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Authorization for publication: Beate, Andrees, Regional Director, Europe & Central Asia • ROEurope and Central Asia ILO Working Papers can be found at: www.ilo.org/global/publications/working-papers Suggested citation: De Gobbi, M., Kühn, S., Heins, G., Malikova, Z. 2025. Demographic change in Europe and Central Asia: Addressing the issue of a shrinking and ageing labour force, ILO Working Paper 139 (Geneva,

ILO). https://doi.org/10.54394/UTFG031401 ILO Working Paper 139 Abstract This paper identifies existing labour market challenges associated with ageing in Europe and Central Asia. It presents a general overview and provides ideas to stimulate social dialogue. In 2024, there were 28 persons aged 65 years and above per 100 persons aged 15 to 64 years and this ratio is projected to rise to 43 by 2050. The proportion of older workers (55 years and above) will increase, while the prime-age workforce (25 to 54 years) will decline. This demographic transition is expected to result in a net loss of 10 million workers in the region by 2050. As pension systems increasingly have to rely on a diminishing pool of younger workers, sustaining current

will increase, while the prime-age workforce (25 to 54 years) will decline. This demographic transition is expected to result in a net loss of 10 million workers in the region by 2050. As pension systems increasingly have to rely on a diminishing pool of younger workers, sustaining current living standards will become more challenging. Productivity growth in Europe and Central Asia has been falling since 1991. New sources of productivity have to be unlocked if current standards of living are to be maintained. Increasing the labour force participation of inadequately represented groups, including women, persons with disabilities, the youth, migrants and refugees may only partially improve the situation. However, it would be a step forward in improving the outlook for the challenges that the region is experiencing. About the authors Maria Sabrina De Gobbi is a Senior Economist in the ILO Research Department on secondment at the Regional Office for Europe and Central Asia since November 2024. She has been working at the International Labour Organization since 1998 mainly as an economist. She holds advanced university degrees covering the areas of economics, law and environmental management from institutions including the Trieste University in Italy, Tufts University in the United States and Imperial College and the School of African and Oriental Studies in the United Kingdom. Stefan Kühn is a Senior Economist in the ILO Research Department. Stefan has vast experience in analysing of and reporting on global and regional labour market trends. He is the main author of multiple editions of the ILO’s World Employment and Social Outlook: Trends reports and of the recently published Asia-Pacific Employment and Social Outlook. His primary expertise lies in econometric analysis, econometric modelling and structural macroeconomic modelling. Stefan obtained his PhD in Economics from Maastricht University in the Netherlands. Guido Heins is a Technical Officer at the ILO Regional Office for Europe and Central Asia. He began his career with the International Labour Organization in 2019, primarily concentrating on evaluating and financing social protection systems. More recently, he served in a quantitative researcher role at UNU-MERIT, focusing on social protection, while also contributing to the masgan his career with the International Labour Organization in 2019, primarily concentrating on evaluating and financing social protection systems. More recently, he served in a quantitative researcher role at UNU-MERIT, focusing on social protection, while also contributing to the master’s program as teaching staff. He holds an M.Sc. in public policy and human development from the same institution, a joint degree with Maastricht University. Ziyodakhon Malikova is a Junior Economist with expertise in labour markets, social protection, AI, and sustainable development, with a focus on employment trends, demographic change, and digital transitions. She joined the International Labour Organization as an Employment and Social Policy Intern at the Regional Office for Europe and Central Asia in 2024. She holds an MSc in Economics from the University of Bonn and brings strong capabilities in data analysis, impact assessment, and inclusive policy design.02 ILO Working Paper 139 Abstract 01 About the authors 01 X Introduction 04 X 1 Population and labour force trends 06 Population trends 06 Labour force trends 07 Economic dependency and productivity 11 Ageing and labour shortages 14 X 2 Considerations of specific categories of workers 16 A focus on older workers 16 Women in the labour market 18 Persons with disabilities and their labour market challenges 20 Situation of young workers 21 Migrant workers and refugees 23 Benefits and challenges for destination countries 24 Benefits and challenges for origin countries 25 X Conclusion 27 Appendix. Methodology underlying the long-term projections of labour force participation rates 30 References 32 Acknowledgements 38 Table of contents03 ILO Working Paper 139 List of Figures Figure 1. Old-age ratios in Europe and Central Asia, 2024 and 2050 projections 06 Figure 2. Scenario projections for old-age rations in Europe’s in 2050, with and without migration 07

List of Figures Figure 1. Old-age ratios in Europe and Central Asia, 2024 and 2050 projections 06 Figure 2. Scenario projections for old-age rations in Europe’s in 2050, with and without migration 07 Figure 3. Composition of the labour force in Europe and Central Asia, by age group, 2000–50, (million) 08 Figure 4. Labour force participation rates and projections in Europe, by sex and age group, 1991, 2024 and 2050 (percentage) 09 Figure 5. Labour force participation rates and projections in Central and Western Asia, by sex and age group, 1991, 2024 and 2050 (percentage) 10 Figure 6. Share of those aged 55 years and above in the labour force in Europe and Central Asia, by subregion, 2000–50 (percentage) 11 Figure 7. Impact of demography and employment rate on average annual GDP growth, in Europe and Central Asia, 2024–50 (percentage points) 13 Figure 8. Youth not in employment, education or training in Europe and Central Asia, 2024, by sex (percentage) 19 Figure 9. Youth not in employment, education or training in Europe and Central Asia, 2005– 24 (percentage) 22 Figure 10. Proportion of international migrants in the labour force in Europe and Central Asia, by broad subregion, 2013–22 (percentage) 2404 ILO Working Paper 139 X Introduction Europe and Central Asia,1 like the rest of the world, is undergoing a rapid demographic transformation. Particularly in Europe, the prime working-age population (25 to 54 years) is shrinking due to low fertility rates, with some European countries, and mainly in Eastern Europe, also suffering from talent emigration. Although total fertility in Central Asia and Israel remains above the replacement level, lower birth rates and higher longevity have caused significant shifts in the population structure. The ensuing rising economic dependency of the non-employed on working due to low fertility rates, with some European countries, and mainly in Eastern Europe, also suffering from talent emigration. Although total fertility in Central Asia and Israel remains above the replacement level, lower birth rates and higher longevity have caused significant shifts in the population structure. The ensuing rising economic dependency of the non-employed on workers and shrinking labour force threatens economic wealth – both at the aggregate level due to the risk of hampering economic development, but also at the individual level, by straining the capacity of existing social protection systems to provide adequate old-age pensions. Section 1 of this paper addresses the issue of a shrinking and ageing working population in Europe and Central Asia as well as the challenges that may arise from demographic shifts. It offers a snapshot of the current demographic and labour market trends in the region. Issues stemming from an ageing labour force and rising dependency ratios are described. Societies need to define and strategize how to react to the challenges posed by demographic change and rising dependency ratios. To mitigate the impact of such challenges, the participation in the labour force of specific categories of people who are presently not fully engaged can be expanded, in particular women, older workers and young people, persons with disabilities, and migrant workers and refugees. Section 2 of this paper investigates the labour market characteristics of those groups and highlights some challenges which hinder greater participation by them. The analysis raises several questions critical for securing an adequate share of the economically active population with decent work, supporting the young and elderly, national healthcare systems and social protection schemes. The share of older workers will also keep rising on account of longer and healthier lives. Older workers may have age-specific characteristics in terms of physical and mental fitness, skills and experience acquired, and levels of productivity. How can the potential of older workers be tapped? How can their active status in the labour market be supported in productive and well-paying economic activities? The persistent inequality in the distribution of unpaid care work, disproportionately borne by women, and the inadequacy of childcare, elderly care, long-term care and related care leave policies and infrastructure significantly hinder women’s labour market participation, their ability to

economic activities? The persistent inequality in the distribution of unpaid care work, disproportionately borne by women, and the inadequacy of childcare, elderly care, long-term care and related care leave policies and infrastructure significantly hinder women’s labour market participation, their ability to balance both unpaid care and paid work, as well as their broader economic security, health and well-being. How can policies foster women’s participation in the labour market and their right to decent work? Persons with disabilities are inactive or unemployed in higher shares than the rest of the working-age population. Recent developments including digitalization, artificial intelligence (AI) and telework can make it easier for persons with disabilities to be employed in productive, decent 1 The 51 ILO Member States in the Europe and Central Asia region are: Albania, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czechia, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malta, Montenegro, Netherlands, North Macedonia, Norway, Poland, Portugal, Republic of Moldova, Romania, Russian Federation, San Marino, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Tajikistan, Türkiye, Turkmenistan, Ukraine, United Kingdom and Uzbekistan. Kosovo is also included as defined in UN Security Council Resolution 1244 of 1999.05 ILO Working Paper 139 jobs. How can the employment of persons with disabilities be supported and their active participation in the labour market be boosted? The level of youth who are not in employment, education or training (NEET) in Europe and Central Asia stands at rather high levels. How can youth employment be increased jointly with rising levels of participation of older people in the labour force? Talented and skilled youth are leaving some areas in Europe and Central Asia, such as the Western Balkans, to emigrate to other countries in the region which have started programmes to attract foreign, qualified labour force. How can development policies encourage the return of skilled emigrated youth?

Talented and skilled youth are leaving some areas in Europe and Central Asia, such as the Western Balkans, to emigrate to other countries in the region which have started programmes to attract foreign, qualified labour force. How can development policies encourage the return of skilled emigrated youth? Certain migration movements are quite constant in some areas, and conflicts in the region have generated flows of refugees that have the potential to support the shrinking labour force of host countries. How can countries ensure the inclusion of migrant workers and refugees in their labour markets to better support shrinking labour forces in the region? Which policies facilitate the integration of refugees in national labour markets? How can decent working conditions be secured for all workers, including migrants, especially in those sectors offering jobs of low quality, where local qualified candidates refuse employment? Productivity is fundamental for economic development and higher wages. It is also a key component for sustained, sustainable and inclusive development. Yet, recent productivity growth has been low, which is extremely problematic given the rising dependency ratio in the region – which is the number of persons below the age of 15 years and 65 years and older compared to those aged 15 to 64 years. Furthermore, with rapid technological shifts and rising pressures brought on by climate change, boosting productivity may not benefit everyone equally. How can productivity gains be fostered and equally distributed among all individuals, including those who are vulnerable, who are socially excluded or who face discrimination? This paper identifies existing labour market challenges associated with ageing. Social dialogue often plays an important role in the identification and implementation of solutions, and such instances are highlighted. It is for social partners and policymakers to choose the most appropriate mechanisms to mitigate the labour market challenges associated with their ageing societies. This paper presents a general overview and provides ideas to stimulate social dialogue with the guiding questions above.06 ILO Working Paper 139 X 1 Population and labour force trends

Population trends The global phenomenon of population ageing affects Southern Europe more than other subregions in Europe and Central Asia; while Central Asia is projected to maintain a low dependenwith the guiding questions above.06 ILO Working Paper 139 X 1 Population and labour force trends

Population trends The global phenomenon of population ageing affects Southern Europe more than other subregions in Europe and Central Asia; while Central Asia is projected to maintain a low dependency ratio until 2050, with proportionally more working-age adults to support the young and the elderly (see figure 1). In Europe and Central Asia as a whole, the old-age ratio – the number of persons aged 65 years and above per 100 persons aged 15 to 64 years – is projected to rise from 28 in 2024 to 43 in 2050 – a change very similar to that expected for high-income countries globally. Yet, demographic trends differ widely across subregions. Southern Europe is expected to experience the largest change in the old-age ratio, by 30 persons, reaching 66 per 100 by 2050. Western Asia is also expected to see a large increase in the old-age ratio. However, on account of its relatively young population in 2024, the old-age ratio is projected to rise to only 34 persons per 100 by 2050. Northern Europe is expected to see a relatively small rise in the old-age ratio by 11 to 42 persons per 100 in 2050. Central Asia’s old-age ratio hardly rises and is projected to stand at 17 persons per 100 in 2050. Furthermore, the total population is projected to rise between 2024 and 2050 in Northern Europe and in both Central and Western Asia as well, while it is projected to fall in the other European subregions.2 X Figure 1. Old-age ratios in Europe and Central Asia, 2024 and 2050 projections Note: The old-age ratio is the population aged 65 years and above per 100 persons aged 15 to 64 years. The old-age ratios of

men and women are projected to change very similarly, with women exhibiting a higher level due to longer life expectancy.

Source: DESA (2024).

Even though population projections are subject to uncertainty related to the evolution of birth rates and migration flows, all scenarios for Europe project a major rise in the old-age ratio (see figure 2). Advances in longevity and the ageing of the baby-boomer generation mean that even if birth rates in Europe were to instantly rise to replacement level, the number of persons aged 2 Between 2024 and 2050, the total population is projected to decline by 42 million in Europe, and to rise by 39 million in Central and Western Asia.07 ILO Working Paper 139 65 years and above per 100 persons aged 15 to 64 years would only rise to 46 by 2050 – an improvement of a mere 4 persons compared to the median projection for Europe. The absence of inward migration into Europe would raise the old-age ratio by around three persons – an impact that is notable but that nevertheless pales in comparison to the overall increase in the old-age ratio due to demographic change. Indeed, 90 per cent of all scenarios estimated for Europe by the UN World Population Prospects 2024 project an old-age ratio in the range between 47 and 52 by 2050. X Figure 2. Scenario projections for old-age rations in Europe’s in 2050, with and without migration Note: Old-age ratio is the population aged 65 years and above per 100 persons aged 15 to 64 years.

Source: DESA (2024).

Labour force trends As populations in Europe and Central Asia age, the composition of the population and the labour force will change significantly (see figure 3). While the number of persons aged 55 years and above in the labour force is projected to rise to 25 million by 2050 in Europe and Central Asia, the labour force aged 15 to 54 years is projected to decline from 365 million in 2023 to 330 million by 2050, resulting in a net loss of 10 million. Although changes in the population strucAsia, the labour force aged 15 to 54 years is projected to decline from 365 million in 2023 to 330 million by 2050, resulting in a net loss of 10 million. Although changes in the population structure are the primary drivers of changes in the composition of the labour force, distinct trends in labour force participation rates (LFPRs) among various demographic groups can also have an impact on that composition.08 ILO Working Paper 139 X Figure 3. Composition of the labour force in Europe and Central Asia, by age group, 2000–50, (million)

Source: ILO estimates.

Between 1991 and 2024, the aggregate LFPR fell in both Europe and Central Asia, and it is projected to fall further by 2050 (see figures 4 and 5). Yet, participation rates of those aged 25 to 64 years, who comprise the bulk of the labour force, have even risen in Europe since 1991, and have hardly fallen in Central and Western Asia, and they are projected to rise by 2050 in both regions. Demographic change – the fact that a larger share of the population enters an age group where the LFPR is lower due to retirement – is responsible for the declining LFPR. Rising longevity also tends to raise the share of retired persons among those aged 65 years and above, which would lower the LFPR of that age group. In Europe, the share of the population aged 80 years and above among those aged 65 years and above is projected to rise from 26 per cent in 2023 to 36 per cent in 2050 (see also Pinkus and Ruer 2024).3 Youth aged 15 to 24 years have experienced declining participation rates and at the same time rising educational enrolment in both regions. Europe has witnessed a major expansion of female participation, in particular in the age group 55 to 64 years, and this expansion is projected to continue (see figure 4). Older men aged 55 to 64 years have also expanded their LFPR significantly, implying increases in the average retireEurope has witnessed a major expansion of female participation, in particular in the age group 55 to 64 years, and this expansion is projected to continue (see figure 4). Older men aged 55 to 64 years have also expanded their LFPR significantly, implying increases in the average retirement age in the region. Participation rates among those aged 65 years and above have also risen, though only marginally, and they remain at a low level, certainly in comparison to Central and Western Asia (see figure 5). Those trends counter the impact of the demographic shift, resulting in only marginal changes of the aggregate LFPR in Europe. 3 In 2023, the LFPR of those aged 80 to 90 years stood at 0.4 per cent in France, 0.8 per cent in Poland and 1.4 per cent in Portugal.09 ILO Working Paper 139 X Figure 4. Labour force participation rates and projections in Europe, by sex and age group, 1991, 2024 and 2050 (percentage) Source: ILOSTAT, ILO modelled estimates, November 2024; ILO estimates. In the absence of rising trends of LFPR in individual demographic groups, Central and Western Asia is projected to see its aggregate LFPR decline by almost 6 percentage points by 2050, as opposed to a decline of around 2 percentage point for Europe (figure 5). Between 1991 and 2024, women in Central and Western Asia experienced a much smaller decline than men in LFPR (1.7 versus 6.5 percentage points), but the gender gap remains large, at 26 percentage points in

2024. The gender gap is particularly large in the age group 55 to 64 years and, in relative terms, in the age group 65 years and above. In 2024, 12.0 per cent of persons above 65 years of age were still part of the labour force, which is likely due to economic necessity given insufficient and inadequate old-age pensions.10 ILO Working Paper 139

X Figure 5. Labour force participation rates and projections in Central and Western Asia, by sex and age

were still part of the labour force, which is likely due to economic necessity given insufficient and inadequate old-age pensions.10 ILO Working Paper 139 X Figure 5. Labour force participation rates and projections in Central and Western Asia, by sex and age group, 1991, 2024 and 2050 (percentage) Source: ILOSTAT, ILO modelled estimates, November 2024; ILO estimates. The share of those aged 55 years and above in the labour force has been rising strongly in the various subregions, but it is projected to eventually level off between 25 and 30 per cent, and to even decline again somewhat in some subregions (see figure 6). In Southern Europe, for example, the share of the population aged 55 years and above is projected to reach 46 per cent in 2040, and 48 per cent by 2100 – essentially reaching a plateau.4 Yet, the share of the population aged 80 and above is projected to rise from 10 to 19 per cent over the same period, thereby explaining the projected decline in the share of older workers in the labour force after 2040. Such a development is bound to happen in all regions undergoing a transition from high to low birth rates, unless old-age participation rates were to rise continuously. 4 As cohorts with high birth rates become older, the share of the population that is likely to be retired increases, while the share of the population aged 55 years and above approaches an equilibrium value.11 ILO Working Paper 139 X Figure 6. Share of those aged 55 years and above in the labour force in Europe and Central Asia, by subregion, 2000–50 (percentage) Source: ILOSTAT, ILO modelled estimates, November 2024; ILO estimates. Economic dependency and productivity Falling aggregate LFPRs will also lead to a falling employment-to-population ratio. This raises the old-age economic dependency ratio, which is the ratio of those who are not in employment to those who are in employment among the population aged 15 years and above.5 The shifts in

Economic dependency and productivity Falling aggregate LFPRs will also lead to a falling employment-to-population ratio. This raises the old-age economic dependency ratio, which is the ratio of those who are not in employment to those who are in employment among the population aged 15 years and above.5 The shifts in the old-age dependency ratio are strongly correlated with the changes in the ratio of the population aged 65 years and above to those aged 15 to 64 years (see figure 1). Yet, rising participation rates among some demographic groups render the resulting changes in dependency ratios surprisingly small for some of the subregions. For Europe, the projected change in the old-age economic dependency ratio between 2024 and 2050 is only 5 inactive persons per 100 employed, as opposed to 20 persons in Central and Western Asia. Northern Europe is even projected to experience a slight decline, while the ratio is projected to rise in Southern Europe by 16 inactive persons per 100 employed. A rising old-age economic dependency ratio exacerbates the distributional challenge to maintain or expand standards of living for all social and demographic groups even if GDP per capita were to continue to increase. Income redistribution through social protection would need to